by Calculated Risk on 1/26/2017 06:39:00 PM

From the Atlanta Fed: GDPNow

The final GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2016 is 2.9 percent on January 26, up from 2.8 percent on January 19. After this morning's advance economic indicators release from the U.S. Census Bureau, the forecast of the contribution of inventory investment to fourth-quarter growth increased from 0.74 percentage points to 0.94 percentage points and the forecast of the contribution of net exports to growth decreased from -0.55 percentage points to -0.64 percentage points.

From the NY Fed NowCast

The FRBNY Staff Nowcast stands at 2.1% for 2016:Q4 and at 2.7% for 2017:Q1.

From Merrill Lynch:

The advance goods trade deficit narrowed to $65.0bn in December from $65.3bn, which was better than our expectations of $65.5bn. Exports in particular surged 3.0% mom, while imports also gained a solid 1.8%. Advance wholesale and retail inventories were also included in this report, with the former surging 1.0% mom and the latter coming in flat. On balance, these data bumped up our 4Q GDP tracking model by 0.2pp to 2.6% qoq saar, which is our updated forecast heading into tomorrow's advance GDP release.

Friday:
• At 8:30 AM ET, Gross Domestic Product, 4th quarter 2016 (advance estimate). The consensus is that real GDP increased 2.2% annualized in Q4, down from 3.5% in Q3.

• Also at 8:30 AM, Durable Goods Orders for December from the Census Bureau. The consensus is for a 3.0% increase in durable goods orders.

• At 10:00 AM, <University of Michigan's Consumer sentiment index (final for January). The consensus is for a reading of 98.2, up from the preliminary reading 98.1.

by Calculated Risk on 1/26/2017 12:36:00 PM

New home sales for December were reported at 536,000 on a seasonally adjusted annual rate basis (SAAR).  This was well below the consensus forecast, however the previous months combined were revised up slightly.

Sales were down 0.4% year-over-year in December. And sales are up 12.2% in 2016 compared to 2015.  This was very solid annual sales growth.

Note that these sales (for December) mostly happened after mortgage rates increased following the election.  As I've noted before, interest rate changes impact new home sales before existing home sales because new home sales are counted when the contract is signed, and existing home sales at the close of escrow.

This is just one month of data, and overall sales growth was solid in 2016, but we might see a dip in sales due to higher interest rates.  If so, this will start impacting expecting existing home sales in January.

On Tuesday, after existing home sales for December were released, I wrote:

With the recent increase in rates, I'd expect some decline in sales volume as happened following the "taper tantrum" in 2013. So we might see sales fall to 5 million SAAR or below over the next 6 months. That would still be solid existing home sales. We might also see a little more inventory in the coming months, and therefore less price appreciation.

It will take several months of data to see the impact of higher mortgage rates - and this is the seasonally weak period - so we might have to wait for the March and April data.

Earlier: New Home Sales decrease to 536,000 Annual Rate in December.

Click on graph for larger image.

This graph shows new home sales for 2015 and 2016 by month (Seasonally Adjusted Annual Rate).  Sales were up 12.2% year-over-year.

Note that December 2015 was a strong month for 2015.

And here is another update to the "distressing gap" graph that I first started posting a number of years ago to show the emerging gap caused by distressed sales.  Now I'm looking for the gap to close over the next several years.

The "distressing gap" graph shows existing home sales (left axis) and new home sales (right axis) through November 2016. This graph starts in 1994, but the relationship had been fairly steady back to the '60s.

Following the housing bubble and bust, the "distressing gap" appeared mostly because of distressed sales.   The gap has persisted even though distressed sales are down significantly, since new home builders focused on more expensive homes.

I expect existing home sales to move more sideways, and I expect this gap to slowly close, mostly from an increase in new home sales.

However, this assumes that the builders will offer some smaller, less expensive homes. If not, then the gap will persist.

Note: Existing home sales are counted when transactions are closed, and new home sales are counted when contracts are signed. So the timing of sales is different.

by Calculated Risk on 1/26/2017 11:00:00 AM

From the Kansas City Fed: Tenth District Manufacturing Activity Continued to Expand Moderately

The Federal Reserve Bank of Kansas City released the January Manufacturing Survey today. According to Chad Wilkerson, vice president and economist at the Federal Reserve Bank of Kansas City, the survey revealed that Tenth District manufacturing activity continued to expand moderately with strong expectations for future activity.

“We had another solid composite index reading in January, and firms’ expectations for future activity were the highest in more than twelve years,” said Wilkerson.
...
The month-over-month composite index was 9 in January, unchanged from 9 in December but up from 0 in November.  The composite index is an average of the production, new orders, employment, supplier delivery time, and raw materials inventory indexes.  Activity in durable goods plants increased moderately, particularly for metals, electronics, and machinery, while nondurable goods plants expanded at a slower pace with food production falling considerably.  Most month-over-month indexes improved slightly in January.  The production index moved slightly higher from 18 to 20, and the shipments, new orders, and order backlog indexes also increased.  The employment index moderated somewhat from 8 to 6, and the new orders for exports index remained negative.  ...
emphasis added

The Kansas City region was hit hard by the decline in oil prices, but activity is expanding again.

by Calculated Risk on 1/26/2017 10:12:00 AM

The Census Bureau reports New Home Sales in December were at a seasonally adjusted annual rate (SAAR) of 536 thousand.

The previous three months were revised up combined.

"Sales of new single-family houses in December 2016 were at a seasonally adjusted annual rate of 536,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 10.4 percent below the revised November rate of 598,000 and is 0.4 percent below the December 2015 estimate of 538,000.

An estimated 563,000 new homes were sold in 2016. This is 12.2 percent above the 2015 figure of 501,000."
emphasis added

Click on graph for larger image.

The first graph shows New Home Sales vs. recessions since 1963. The dashed line is the current sales rate.

Even with the increase in sales over the last several years, new home sales are still fairly low historically.

The second graph shows New Home Months of Supply.

The months of supply increased in December to 5.8 months.

The all time record was 12.1 months of supply in January 2009.

This is now in the normal range (less than 6 months supply is normal).

" The seasonally adjusted estimate of new houses for sale at the end of December was 259,000. This represents a supply of 5.8 months at the current sales rate."

On inventory, according to the Census Bureau:

"A house is considered for sale when a permit to build has been issued in permit-issuing places or work has begun on the footings or foundation in nonpermit areas and a sales contract has not been signed nor a deposit accepted."

Starting in 1973 the Census Bureau broke this down into three categories: Not Started, Under Construction, and Completed.

The third graph shows the three categories of inventory starting in 1973.

The inventory of completed homes for sale is still low, and the combined total of completed and under construction is also low.

The last graph shows sales NSA (monthly sales, not seasonally adjusted annual rate).

In December 2016 (red column), 38 thousand new homes were sold (NSA). Last year, 38 thousand homes were also sold in December.

The all time high for December was 87 thousand in 2005, and the all time low for December was 23 thousand in 1966 and 2010.

This was well below expectations of 590,000 sales SAAR.   I'll have more later today.

by Calculated Risk on 1/26/2017 08:37:00 AM

The DOL reported:

In the week ending January 21, the advance figure for seasonally adjusted initial claims was 259,000, an increase of 22,000 from the previous week's revised level. The previous week's level was revised up by 3,000 from 234,000 to 237,000. The 4-week moving average was 245,500, a decrease of 2,000 from the previous week's revised average. This is the lowest level for this average since November 3, 1973 when it was 244,000. The previous week's average was revised up by 750 from 246,750 to 247,500.
emphasis added

The previous week was revised up.

The following graph shows the 4-week moving average of weekly claims since 1971.

Click on graph for larger image.


The dashed line on the graph is the current 4-week average. The four-week average of weekly unemployment claims decreased to 245,500.

This was above the consensus forecast.  This is the lowest level for the four week average since 1973 (with a much larger population today).

The low level of claims suggests relatively few layoffs.

by Calculated Risk on 1/25/2017 04:51:00 PM

From Matthew Graham at Mortgage News Daily: Mortgage Rates Resume Big-Picture Uptrend

Mortgage rates moved higher for the 5th time in the past 6 business days. The past 2 days have combined to bring rates a full .125% higher. That's the increment by which rates are most commonly divided (i.e. 4.0, 4.125%, 4.25%, etc.). ... The average lender is once-again quoting 4.25% on top tier conventional 30yr fixed scenarios. This isn't the first time we've seen 4.25% this year, but closing costs are slightly higher today. That means effective rates are at 2017 highs. Several lenders are already up to 4.375% and a scant few remain at 4.125%.
emphasis added

Thursday:
• At 8:30 AM ET, The initial weekly unemployment claims report will be released.  The consensus is for 247 thousand initial claims, up from 234 thousand the previous week.

• Also at 8:30 AM, Chicago Fed National Activity Index for December. This is a composite index of other data.

• At 10:00 AM, New Home Sales for December from the Census Bureau. The consensus is for a decrease in sales to 590 thousand Seasonally Adjusted Annual Rate (SAAR) in December from 592 thousand in November.

• At 11:00 AM, the Kansas City Fed manufacturing survey for January.

by Calculated Risk on 1/25/2017 12:49:00 PM

The automakers will report January vehicle sales on Wednesday, February 1st.

Note: There were 24 selling days in January 2017, unchanged from 24 in January 2016.

From WardsAuto: Forecast: January Forecast Calls for Low Sales, High Inventory

The U.S. automotive industry is expected to a have a slow start in the new year, with January light-vehicle sales down 4.4% from like-2016. ... The resulting seasonally adjusted annual rate is 17.0 million units, well below the 18.3 million in the previous month and 17.4 million year-ago.
...
December inventory was 9.2% above same-month 2015, the biggest year-over-year gap since the summer of 2014. Weak sales in January will keep inventory levels high, 16.0% greater than year-ago. A 93-day supply is expected to be available at the end of the month, a major jump from 62 days in December and 77 in January 2016.
emphasis added

Here is a table (source: BEA) showing the top 10 years for light vehicle sales.

2016 was the best ever, and 2017 will probably be mostly flat (no growth) compared to 2016.  With high inventories, production in 2017 will probably decline - even with solid sales.

Light Vehicle Sales, Top 10 Years
	Year	Sales (000s)
1	2016	17,465
2	2015	17,396
3	2000	17,350
4	2001	17,122
5	2005	16,948
6	1999	16,894
7	2004	16,867
8	2002	16,816
9	2003	16,639
10	2006	16,504

by Calculated Risk on 1/25/2017 10:26:00 AM

A few excerpts from a note by Goldman Sachs economists Zach Pandl and Jan Hatzius: FOMC Preview: Holding Pattern

The FOMC looks very likely to keep policy unchanged next week, and should make only modest revisions to the post-meeting statement.

We expect constructive comments on economic activity, assuming GDP growth for Q4 (reported this Friday) is in line with or better than our +2.2% forecast. The committee will probably keep its description of inflation trends roughly unchanged, but it may acknowledge that headline PCE inflation should reach 2% relatively soon (instead of “over the medium term”).

We look for the balance of risk assessment and the characterization of current policy (“accommodative”) to remain unchanged. The statement will likely leave out any explicit mention of fiscal policy for the time being.

CR note: The FOMC meeting is scheduled next week for Tuesday, January 31st and Wednesday, February 1st. The consensus is there will be no change in policy at this meeting.

by Calculated Risk on 1/25/2017 07:00:00 AM

From the MBA: Mortgage Applications Increase in Latest MBA Weekly Surve

Mortgage applications increased 4.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending January 20, 2017. This week’s results included an adjustment for the MLK Day holiday.

... The Refinance Index increased 0.2 percent from the previous week. The seasonally adjusted Purchase Index increased 6 percent from one week earlier to its highest level since June 2016. The unadjusted Purchase Index increased 2 percent compared with the previous week and was 0.1 percent higher than the same week one year ago.
...
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,000 or less) increased to 4.35 percent from 4.27 percent, with points decreasing to 0.30 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
emphasis added

Click on graph for larger image.


The first graph shows the refinance index since 1990.

It would take a substantial decrease in mortgage rates to see a significant increase in refinance activity - although we might see more cash-out refis.


The second graph shows the MBA mortgage purchase index.

Even with the increase in mortgage rates, purchase activity is still holding up - this is the highest level for the index since June 2016.

However refinance activity has declined significantly.

by Calculated Risk on 1/24/2017 03:44:00 PM

Note: This appears to be a leading indicator for industrial production.

From the American Chemistry Council: Chemical Activity Barometer Starts New Year with Strong Gain

The Chemical Activity Barometer (CAB), a leading economic indicator created by the American Chemistry Council (ACC), started the year on a strong note, posting a monthly gain of 0.4 percent in January. This follows a 0.3 percent gain in December, November and October. All data is measured on a three-month moving average (3MMA). Accounting for adjustments, the CAB was up 4.6 percent over this time last year.
...
In January all of the four core categories for the CAB improved and the diffusion index was stable at 65 percent. Production-related indicators were positive, with the housing report indicating accelerating activity and trends in construction-related resins, pigments and related performance chemistry generally improved. Other indicators, including equity prices, product prices, and inventory were also positive.
...
Applying the CAB back to 1912, it has been shown to provide a lead of two to fourteen months, with an average lead of eight months at cycle peaks as determined by the National Bureau of Economic Research. The median lead was also eight months. At business cycle troughs, the CAB leads by one to seven months, with an average lead of four months. The median lead was three months. The CAB is rebased to the average lead (in months) of an average 100 in the base year (the year 2012 was used) of a reference time series. The latter is the Federal Reserve’s Industrial Production Index.
emphasis added

Click on graph for larger image.

This graph shows the year-over-year change in the 3-month moving average for the Chemical Activity Barometer compared to Industrial Production.  It does appear that CAB (red) generally leads Industrial Production (blue).

CAB has increased solidly over the last several months, and this suggests an increase in Industrial Production over the next year.